China’s soybean import ‘boom’ engenders price drop — study
Source: Marc Heller, E&E News reporter • Posted: Tuesday, September 19, 2017
That’s one takeaway from a recent analysis by agricultural economists at the University of Illinois, who said Chinese soybean imports are preventing prices for soybean oil — the main feedstock for biodiesel — from climbing, despite a boom in the U.S. biodiesel industry.
Prices for soybean oil have fallen, defying the common wisdom that a humming biodiesel industry should have the opposite effect, economists said. That could keep pressure on U.S. EPA and Congress to maintain or boost biodiesel mandates in the federal renewable fuel standard, at the same time as competing oil and gas companies are pushing for reductions.
“China’s soybean import boom has been so large that the resulting increase in global soybean oil supplies has allowed the U.S. boom in biodiesel production to take place without causing a corresponding boom in soybean oil prices,” said the University of Illinois economists, Scott Irwin and Darrel Good, in a post on the university’s “farmdoc” website.
From 2011 to this year, total biomass-based supply in the United States grew from 1 billion gallons to 2.5 billion gallons, while soybean oil prices fell 40 percent, from 50 cents to 30 cents per pound, said the researchers, at the university’s Department of Agricultural and Consumer Economics.
That’s because China imports ten of millions of tons of soybeans, which it crushes into meal for pigs and other livestock, they said. And while imports tailed off earlier this year, the long-term view remains that China will have a big role in U.S. soybean production because of its growing livestock industry, agriculture experts told E&E News.
The U.S. Department of Agriculture has estimated China will import 91.5 million tons of soybeans this year, from Argentina and Brazil as well as the United States.
China’s effect on U.S. markets suggests the RFS can handle more advanced biofuel, said John Kruse, principal and director of quantitative analysis at World Agricultural Economic and Environmental Services LLC.
“It’s really not constrained,” Kruse said. “We have more room to grow on the advanced side.”
China’s imports produce billions of gallons of soybean oil as well, the researchers said, but the oil is almost an afterthought because soybean meal is the main driver in soybean prices.
Biodiesel supporters have worked to convince EPA about their industry’s potential for growth, and the Illinois economists’ findings help make the case, said Tom Hance, a Washington representative for the American Soybean Association.
“It reinforces what we’ve been saying for years,” Hance said.
Soy-based fuel is different from ethanol produced from corn, Hance said his organization has told EPA. Farmers plant soybeans for food, not fuel, and the oil is just a byproduct, so the debate over land-use changes related to the RFS doesn’t apply, he said.
What does the future hold for biodiesel? The National Biodiesel Board, an industry group, said its goal is for domestic production of 4 billion gallons by 2022, or almost double the current level.
EPA appears less optimistic. The agency proposed keeping the biomass-based diesel target at 2.1 billion gallons in 2019, and to reduce overall advanced biofuels from 4.28 billion gallons to 4.24 billion gallons in 2018, citing the Trump administration’s aim of encouraging more diverse sources of ingredients for advanced biofuel.
The NBB asked EPA to increase the biomass-based diesel requirement to 2.75 billion gallons.
Even with increasing production, the U.S. industry relies on biodiesel imports as well, which further complicates the picture. Sources include Argentina and Indonesia, which subsidize exports.
Challenges to the subsidies by the Department of Commerce and the U.S. International Trade Commission could trigger a biodiesel shortfall in the United States, the American Fuel and Petrochemical Manufacturers warned EPA in a letter Friday. The expiration of the federal biodiesel tax credit last year has taken away a production incentive, and EPA may need to consider reducing RFS mandates, the group said. Several lawmakers have proposed reinstating the credit, but there’s not a firm timetable for Congress to take up the legislation.
“If imports decline in future months of 2017, we are uncertain that higher domestic production will adequately address the shortfall, especially in the absence of the federal biodiesel tax credit,” the group said.